Building Construction Agreement

Initial: ______
EXHIBIT 10.12
THE SYMBOL "**" IS USED TO INDICATE
THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED
AND FILED SEPARATELY WITH THE COMMISSION


CONSTRUCTION AGREEMENT RELATED TO LEASE AGREEMENTS DATED SEPTEMBER 1, 1997, BY AND BETWEEN P/A CHARLESTON ROAD LLC, A CALIFORNIA LIMITED LIABILITY CORPORATION, AS LANDLORD, AND ALZA CORPORATION, A DELAWARE CORPORATION, AS TENANT, FOR ALL OF THOSE THREE CERTAIN BUILDINGS TO BE CONSTRUCTED BY TENANT AND ASSOCIATED SITE IMPROVEMENTS, LOCATED AT AMPHITHEATRE PARKWAY AND CHARLESTON ROAD, IN MOUNTAIN VIEW, CALIFORNIA


THIS AGREEMENT ("Construction Agreement") sets forth the agreement of P/A Charleston Road LLC, a California limited liability company ("Landlord"), and ALZA Corporation, a Delaware corporation ("Tenant", with Landlord and Tenant sometimes hereinafter collectively referred to as the "Parties"), relative to the design and construction of the Site Work (which includes the Common Areas), Cold Shell Improvements, Warm Shell Improvements (with Cold Shell Improvements, Warm Shell Improvements and Site Work hereinafter collectively referred to as "Shell Improvements") and Interior Improvements for three buildings (collectively referred to as the "Buildings" and individually as a "Building" (and as to a respective Building as "Building One", "Building Two" and "Building Three")) suitable for office and for research and development use to be constructed pursuant to the terms and conditions of this Construction Agreement at that certain undeveloped real property owned by Landlord and consisting of approximately 13.48 acres located at Amphitheatre Parkway and Charleston Road, in Mountain View, California (the "Property"). Each of the Buildings is separately the subject of a separate Lease each dated as of the date of this Construction Agreement by and between Landlord and Tenant and respectively referred to as the Building One Lease, the Building Two Lease and the Building Three Lease (each a "Lease" and collectively the "Leases"). The aggregate square footage of all three Buildings is currently anticipated to be in the range of approximately 300,000 to 360,000 square feet, dependent upon what square footage is ultimately approved by the City of Mountain View during the Planned Community Permit process, and ultimately subject to final measurement as provided in Section 7 below. As provided in Section 2.A below, Tenant is obligated to exercise due diligence to maximize the size of the permitted development.


1. DEFINITIONS: In addition to the defined terms set forth above, as used in this Construction Agreement, the following terms shall have the following meanings, and any initially capitalized terms used in this Construction Agreement which are not defined in this Construction Agreement, but which are defined in the form of the Leases, shall have the meanings ascribed to them by the form of the Leases:


A. Approved Specifications: The term "Approved Specifications" means those certain plans and specifications for the Shell Improvements and Interior Improvements to be constructed by Tenant, which are from time to time referenced or described on Schedule "A-1" to this Construction Agreement. The Parties acknowledge that as of the date of this Construction Agreement, the plans and specifications have not been completed and accordingly will not be attached until agreed to by the Parties in accordance with the terms of this Construction Agreement (and despite the fact that such plans and specifications are not yet completed, that except for Damage Delays (as defined in Section 1.M), Landlord Delays (as defined in Section 1.N), and Weather Delays (as defined in Section 1.O), neither any delay in completing or failure to complete such plans and specifications nor any delay in completing or failure to complete the construction of the Improvements shall affect Tenant's obligation to pay Rent in accordance with the terms of the respective Lease on the Rent Commencement Date (as defined in Section 1.K)).


B. Shell Improvements: The term "Shell Improvements" shall mean the combination of the Cold Shell Improvements, Warm Shell Improvements and Site Work which are to be constructed by Tenant and paid for by the Parties as set forth in Section 3.F.


C. Cold Shell Improvements: The term "Cold Shell Improvements" shall mean the following: (i) the shell of each of the three (3) Buildings, consisting of a pile or spread footing foundation, the exterior walls (including the architectural skin of each Building), the floor slab for each story, the floor deck for each story, the load bearing walls, the roof system, the roof membrane with insulation, two standard width interior stairways, exterior doors and exterior door hardware, duct shafts and the shafts (but not equipment) for the elevators, (ii) the underground parking that will serve all three Buildings, including any lighting for such underground area, and (iii) all paving and other parking areas, striping, sidewalks, loading docks, monument sign for the Complex and each Building, parking curbs, ramps, dumpsters, gutters, irrigation system, landscaping, storm sewer, 4,000 amp electrical service per Building at 480 volts with primary transmitter, bus duct, pull section, switch, main utility service conduits (excluding electrical panel) from the street to each Building's perimeter, transformer pad, the main plumbing line into each Building, water, gas and sewer connection fees including cost to hook up to Mountain View sewer system, any building permit fees, school fees, or other building mitigation fees, premiums for any insurance required to be carried hereunder (whether by Tenant or any Prime Contractors) during the course of construction of the Cold Shell Improvements, and any contractor's fees, architect's fees and engineer's fees, applicable to the design or construction of any Cold Shell Improvements, but excluding (w) roof screens, (x) building connectors, (y) outside parking lot lighting, and (z) utility pads (including exterior walls and all other construction elements of any such utility pads and electrical panels).


D. Warm Shell Improvements: The term "Warm Shell Improvements" shall mean the following for each of the three Buildings: the core electrical systems (including distribution panels, HVAC, main electrical power risers and energized electrical power panels located in an electrical room (one on each floor) as required by code, and similar items), the core mechanical systems (including package units and shafts), fire protection and life safety systems and equipment as required by code to obtain a temporary occupancy permit (for shell distribution, including master fire sprinkler grid system), main plumbing and HVAC risers in the Building's core, main telephone risers connected to telephone backboards located in a telephone room/closet (one on each floor) as required by code, janitorial closet (one on each floor), perimeter exterior and building core walls finished with gypsum wall board (taped), core toilets (one pair of toilet rooms per floor), building connectors (open on all building levels, to the extent counterpart floors exist in the other Buildings), elevators for passengers and freight in each Building (with elevator cabs finished), exposed ceiling structure, painting of the garage interior, loading docks, roof screens, parking lot lighting (other than lighting in the basement parking area that services all three Buildings), utility pads (including all construction elements of utility pads such as any exterior walls), any governmental or utility charges or fees for connection to utilities (other than water, gas and sewer connection fees), any building permit fees, school fees, or other building mitigation fees associated with the Warm Shell Improvements, premiums for any additional amount or period of coverage of insurance required to be carried hereunder (whether by Tenant or any Prime Contractors) with respect to the construction of the Warm Shell Improvements, and any contractor's fees, architect's fees and engineer's fees, applicable to the design or construction of any Warm Shell Improvements.


E. Site Work: The term "Site Work", which includes Common Area, shall mean onsite and offsite work to be constructed by Tenant and paid for by the Parties as set forth in Section 3.F as reasonably required to prepare the Property for development as contemplated in this Construction Agreement (including any additional onsite or offsite work that may be required in order to obtain any required governmental approvals (including, but not limited to, the Planned Community Permit and any building permits) or to obtain approval for any increased size of development on the Property), including, without limitation, construction and improvement of the Common Areas of the Complex, grading, any required street improvements, any required onsite or offsite extension of utilities, any required onsite or offsite landscaping, any required levee reinforcement, and the Property's share (which is equal to 66% of the total) of any required onsite or offsite burrowing owl mitigation. Tenant's legal fees and consultant's fees associated with Tenant's due diligence review of the Property and any costs related thereto (including, but not limited to, any fees or costs related to the drafting and negotiating of this Construction Agreement, the Leases, the Ground Lease being entered into by Tenant and certain members of Landlord, or the limited liability company formation documents related to Landlord), shall not be included in the cost of the Site Work but Tenant's legal fees and consultant's fees associated with seeking or obtaining any governmental approvals or permits associated with (or imposed as a condition to) developing the Complex shall be included in the cost of the Site Work (including by way of example, 66% of the legal fees and consultant's fees associated with the negotiation, preparation and review of the applications, reports, license agreements and memorandums of understanding relating to the burrowing owl mitigation plan).


F. Interior Improvements: The term "Interior Improvements" shall mean all improvements to be constructed by Tenant and paid for by Tenant, both within the Building shell of each Building and any additional improvements which Tenant may, with the approval of Landlord, desire to make to the Property, to the extent not included in the definition of Shell Improvements as set forth above. By way of example, Interior Improvements shall include, but not be limited to, what are customarily considered tenant space improvements as applicable to the use being made of any interior portion of the Building, such as carpeting, vinyl floor covering, drop ceilings, interior plumbing, heating and air conditioning distribution systems, electrical distribution systems, painting, interior walls, floor to ceiling partitioning, the installation or distribution within any tenant spaces of any fire sprinkler, fire protection and life safety systems and equipment, any clean room modules, any monument signs for a particular Building (to the extent not constructed or completed as part of the Shell Improvements), any building permit fees, school fees, or other building mitigation fees associated with any Interior Improvements, premiums for any additional amount or period of coverage of insurance required to be carried hereunder (whether by Tenant or any Prime Contractors) with respect to the construction of any Interior Improvements and any contractor's fees, architect's fees and engineer's fees, applicable to the design or construction of any Interior Improvements. Interior Improvements as used herein shall include only the initial full buildout of any portion of the Building sufficient to obtain a certificate of occupancy or its equivalent for the use of such portion of the Building (and shall not include any subsequent alterations or additions to the initial buildout of such portion of the Building). Section 4.A of this Construction Agreement sets forth the obligation of Tenant as to causing Interior Improvements to be constructed in each of the Buildings.


G. Improvements: The term "Improvements" shall mean the Shell Improvements and the Interior Improvements.


H. Architect: The term "Architect" shall mean such licensed architect(s) as (i) are selected by Tenant and approved by Landlord for the design of the Shell Improvements, with the approval of Landlord not to be unreasonably withheld or delayed, and with Hoover & Associates and EDAW Inc. being hereby approved by Landlord as the building architect and landscape architect, respectively, but without any obligation of Tenant to continue to use either of such architects in the future, but in the event either or both are to be replaced by Tenant, Tenant shall obtain the approval of Landlord to the replacement Architect. While Tenant has not committed to use any particular Architect for the design of any of the Interior Improvements, and Tenant may use different Architects for different portions of a Building, Landlord hereby preapproves the use of each of Hoover & Associates, RMW, Inc., MBI Inc., and Ken Kornberg & Associates, Inc. as an interior architect for all or any portion of the Interior Improvements


I. Prime Contractor(s): The term "Prime Contractor" shall mean such licensed general contractor(s) (i) as is jointly selected by Landlord and Tenant after consideration of a number of potential candidates (which candidates shall include Vance Brown, DPR Construction Inc., South Bay Construction Company, Swinerton and Walberg and Rudolph & Sletten ), each of whose approval shall not be unreasonably withheld, for the construction of the Shell Improvements and (ii) as selected by Tenant, and approved by Landlord, with respect to the construction of all or any portion of the Interior Improvements. Vance Brown is approved by Landlord and conditionally approved by Tenant as the Prime Contractor for the Shell Improvements, but without any obligation of Tenant to continue to use Vance Brown as the Prime Contractor in the future. In the event Vance Brown is to be replaced by Tenant, Landlord's approval of the replacement Prime Contractor for the Shell Improvements shall be obtained. While Tenant has not committed to use any particular Prime Contractor for the construction of any of the Interior Improvements, and Tenant may use different Prime Contractors for different portions of a Building, Landlord hereby preapproves the use of any of the following contractors: Vance Brown, DPR Construction Inc., South Bay Construction Company, Swinerton and Walberg and Rudolph & Sletten.


J. Substantial Completion: The term "Substantial Completion" and "Substantially Completed", shall mean separately as to each of the three (3) Buildings:


(1) As to the Shell Improvements, the date when all of the following have occurred with respect to the Shell Improvements with respect to each such Building, on a Building by Building basis: (i) the construction of the Shell Improvements in question have been substantially completed in accordance with the approved plans therefor and with all applicable laws, statutes, codes, rules and regulations (collectively, "Laws") except for minor punch list items which do not prevent Tenant from reasonably proceeding with the construction of the Interior Improvements; (ii) the Architect has executed a certificate or statement representing that, to its knowledge, such Shell Improvements have been substantially completed in accordance with the plans and specifications therefor and all applicable Laws, except for minor punch list items which do not prevent Tenant from reasonably proceeding with the construction of the Interior Improvements; (iii) the Building Department of the City of Mountain View has completed its final inspection of such Shell Improvements and has "signed off" the building inspection card approving such work as complete, except for minor punch list items which do not prevent Tenant from reasonably proceeding with the construction of the Interior Improvements; (iv) a Certificate of Occupancy or other approval as to the Shell Improvements is issued by the City of Mountain View (provided, however, that such Certificate of Occupancy or other approval as to the Shell Improvements may be issued subject to the condition that the Interior Improvements be likewise approved); (v) Landlord has received unconditional lien releases in form sufficient to satisfy the applicable requirements of California Civil Code Section 3262 from all contractors, subcontractors and materialmen that have provided services or materials for the applicable Shell Improvements, together with such other evidence of lien-free completion of such Shell Improvements as Landlord may reasonably request; and (vi) all Site Work improvements have been sufficiently concluded and completed so as not unreasonably to interfere with access to the applicable Building and the use of the parking area and other outside areas (including the elimination of any outside storage of construction materials and the removal of any construction trailers from the Property); and


(2) As to all or any portion of the Interior Improvements, the date when all of the following have occurred with respect to such Interior Improvements, on a space by space basis: (i) the construction of the Interior Improvements in question have been substantially completed in accordance with the approved plans therefor and with all applicable Laws except for minor punch list items which do not prevent Tenant from occupying the applicable portion of the Building for the purposes of conducting business therein; (ii) the Architect has executed a certificate or statement representing that, to its knowledge, such Interior Improvements have been substantially completed in accordance with the plans and specifications therefor and all applicable Laws, except for minor punch list items which do not prevent Tenant from occupying the applicable portion of the Building for the purposes of conducting business therein; (iii) the Building Department of the City of Mountain View has completed its final inspection of such Interior Improvements and has "signed off" the building inspection card approving such work as complete, except for minor punch list items which do not prevent Tenant from occupying the applicable portion of the Building for the purposes of conducting business therein; (iv) a Certificate of Occupancy or other approval as to the Interior Improvements is issued by the City of Mountain View; and (v) Landlord has received unconditional lien releases in form sufficient to satisfy the applicable requirements of California Civil Code Section 3262 from all contractors, subcontractors and materialmen that have provided services or materials for the applicable Interior Improvements, together with such other evidence of lien-free completion of such Interior Improvements as Landlord may reasonably request.


The Parties acknowledge that the Rent Commencement Date of each respective Lease is fixed so as to be the earlier of:


(i) the Scheduled Rent Commencement Date (as defined in
Section 1.K) subject only to any extension arising from any
Landlord Delay (as defined in Section 1.N), any Damage Delay
(as defined in Section 1.M) or any Weather Delay (as defined
in Section 1.O) pursuant to Section 9 below, regardless of
the status of the completion of the Shell Improvements
and/or Interior Improvements as of the Scheduled Rent
Commencement Date, or


(ii) the applicable Substantial Completion Date (as
defined in Section 1.K) of the Building Shell and Tenant
Improvements as to the applicable Building.


K. Rent Commencement Date: The term "Rent Commencement Date" for each of the three (3) Buildings shall mean the earlier of:


(i) eighteen (18) months (the "Agreed Construction
Period") following the earlier of the following dates
(regardless of whether or not Tenant has completed the
Improvements as set forth in this Construction Agreement):


(a) the date that Tenant obtains from the City of
Mountain View a Planned Community Permit (the "PCP
Permit") permitting Tenant to proceed generally
thereafter with seeking the issuance of building
permits for the construction of the three (3) Buildings
(but the issuance of a building permit is not a
condition to the commencement of the Agreed
Construction Period), or


(b) the date of October 31, 1997 (the "Outside
Date") subject to the right of Landlord to extend such
Outside Date pursuant to Section 2.C below (with the
date as so determined pursuant to clause (i) hereof,
including as affected by any extension of the Outside
Date by Landlord pursuant to Section 2.C below, herein
referred to as the "Scheduled Rent Commencement Date");
or


(ii) the Substantial Completion of the Shell
Improvements and Interior Improvements on a Building by
Building basis (the "Substantial Completion Date").
Subject to the following sentence, the Agreed Construction
Period shall be subject to an automatic extension on a day for
day basis in the event and to the extent of the aggregate of (i)
any Landlord Delay, (ii) any Damage Delay, and (iii) any Weather
Delay, but shall not otherwise be subject to extension regardless
of the status of the completion of the Shell Improvements or
Interior Improvements and regardless of whether the actual
construction period exceeded the Agreed Construction Period. Any
delay in Substantial Completion of the Improvements caused by any
combination of Landlord Delay, Damage Delay and Weather Delay
shall not be double counted, to the effect that each single day
of delay in Substantial Completion of the Improvements occasioned
by more than one cause shall nevertheless be allocated to a
single category of delay (i.e. either Landlord Delay, Damage
Delay or Weather Delay). Subject to the right of Landlord to
extend such Outside Date pursuant to Section 2.C below, either
Landlord or Tenant shall have the right, as provided in Section
2.C below, to terminate this Construction Agreement and the
Leases upon written notice to the other within five (5) business
days after the Outside Date if the City Council of the City of
Mountain View, California fails to finally approve and cause the
issuance by the City of Mountain View of a PCP Permit on or
before the Outside Date, where the PCP Permit is consistent with
the application for such PCP Permit submitted by Tenant to the
City of Mountain View on August 21, 1997 (or which PCP is
otherwise reasonably acceptable to Landlord and Tenant
considering the standards for acceptability set forth in the
following sentence). Any conditions which may be imposed by the
City Council of the City of Mountain View, California in
otherwise approving the issuance of the PCP Permit shall not be
grounds for either Landlord or Tenant to elect, pursuant to
Section 2.C below, to terminate this Construction Agreement and
the Leases, unless one or more of such conditions would result in
any of the following: (i) any major change in the footprint of
any of the buildings to be located on the Complex or on the
Adjoining Property (as defined in Section 2.A below), (ii) any
major change in the conceptual architectural design of any of the
buildings to be located on the Complex or on the Adjoining
Property (where, for example, any requirement to redesign the
Buildings to be of a more avant-garde design (such as the nearby
Silicon Graphics building), or to adopt a stairstep indentation
design to the building floors, or to reduce the Three Buildings
to less than an aggregate of 300,000 square feet, or the like
would be a major change, whereas any required changes to on-site
landscaping, columns, window moulins or the like would not be
considered major changes), (iii) any major restriction imposed
on any use currently permitted by the applicable zoning for the
Complex or the Adjoining Property, or (iv) any requirements which
collectively are reasonably estimated to increase the cost to
Tenant (a) of designing or constructing the Complex or (b) of
contributing to or constructing any significant offsite
improvements (such as a fire or police station) where the cost
thereof is not being shared with all future developments in the
general area, by an aggregate amount for (a) and (b) above in
excess of Four Million Dollars.


L. Lease Commencement Date: The term "Lease Commencement Date" for each of the three (3) Buildings shall be the earlier of (i) the Rent Commencement Date or (ii) the date of commencement of any "Early Occupancy Period" of a portion of the Building as defined and provided in Paragraph 2C of the respective Lease. Absent any early occupancy by Tenant of a portion of the respective Building, the Lease Commencement Date shall be the same as the Rent Commencement Date.


M. Damage Delay: The term "Damage Delay" shall mean, as to the Complex and respectively as to each Building, as applicable, the period of delay in the Substantial Completion of construction of the applicable Improvements occasioned by any damage to or destruction of the Improvements occurring during the course of construction which results in damage or destruction to the Improvements having an estimated cost of repair or restoration equal to or in excess of One Million Dollars ($1,000,000) per occurrence.


N. Landlord Delay: The term "Landlord Delay" shall mean, as to the Complex and respectively as to each Building, as applicable, any material delay in the Substantial Completion of the construction of the Improvements to the Complex or to any particular Building caused solely by one or more of the following reasons: (i) the failure of Landlord to timely make any payment of the Improvement Allowance or (ii) the failure of Landlord to timely or reasonably approve or execute any reasonably appropriate plans and specifications, working drawings, permits, utility easements or other related documents which Landlord is responsible for approving or executing under the provisions of this Construction Agreement, in each case, provided that Tenant, after the observation or occurrence of any matter constituting an event which will cause or likely cause a Landlord Delay, within ten (10) days thereafter notifies Landlord in writing of the observation or occurrence of such event and the then estimated amount of any Landlord Delay that will be experienced as a result thereof.


O. Weather Delay: The term "Weather Delay" shall mean, as to the Complex and respectively as to each Building, as applicable, the period of delay in the Substantial Completion of construction of the applicable Improvements occasioned by any abnormally adverse weather conditions (compared to the average seasonal weather conditions experienced in Mountain View, California during the relevant period of construction) in the nature of abnormal rains (and any resultant flooding) such as might occur due to an el nino, provided that there shall not be considered to be any Weather Delay unless the aggregate affect of all Weather Delays (excluding average seasonal weather conditions) are reasonably estimated to have delayed the Substantial Completion of the respective Improvements by a period in excess of thirty (30) calendar days where such days of delay are attributable solely to a Weather Delay.


2. PERFORMANCE: Landlord and Tenant shall each be obligated to use commercially reasonable efforts to perform their respective obligations under this Construction Agreement. The Parties acknowledge that the failure of either Party to accomplish any matter set forth in this Construction Agreement within any particular time period shall not constitute a default (sometimes referred to herein as an "Event of Default") by either Party unless such failure constitutes a breach of the obligation of a Party to use commercially reasonable efforts to perform such obligation and appropriate written notice has been given and a reasonable cure period has expired (which shall in any event be not less than thirty (30) days) without such breach being cured. Upon the occurrence and during the continuance of an Event of Default by Tenant under this Construction Agreement, such shall consti ...